We see many new businesses starting and thriving in Malaysia. With that fact in mind, the country attempts to become a high-income nation. Thus, the government supports and encourages new entrepreneurs and innovation in this nation. The country invites foreign investors, there for, understanding Sdn Bhd is necessary.
Foreigners can register business only under Sdn Bhd (Sendirian Berhad) or as offshore companies. Malaysian citizens have no restrictions as such when it is about setting up a LLC. All companies need to register at the SSM (Companies Commission of Malaysia). By registering your company, you receive many benefits. For instance, you will win your customers’ trust; you will also be able to open a bank account under your company’s name.
Sdn Bhd Meaning
Sdn Bhd is a company that is also known as a Private Limited Company. Foreigners can own 100% of their business if registered under Sdn Bhd. Because of this reason, it is the most popular amongst foreign Investors. Sdn Bhd companies can have from 2 Shareholders up-to 50 shareholders. It does not issue shares to the public. This type of entity does not extend an invitation to the public to invest money in their organization.
Mostly small and medium enterprises operate as private limited companies. So, if you are starting out in the business world, opening a Sdn Bhd company is the best option for you. Sdn Bhd Companies are a separate legal entity. It can buy property, apply for bank loans and bear debts under its name. This means the owners’ personal assets will remain safe and untouchable. The shareholders are responsible for the company’s debts only according to their Investment.
Foreigners can own 100% of their Sdn Bhd business in most cases, but there are some exceptions. There are certain areas in which foreigners cannot own 100% of the company. Following Industries need 50% Malaysian ownership.
- Oil & Gas
What are the requirements to start a Sdn Bhd Company?
- You will need to fulfill financial requirements. For example, for a consultancy & advisory business, you need a minimum of RM. 500,000. Import, export, restaurant or trading needs a paid-up Capital of RM.1,000,000.
- Your business must show promise in benefitting the nation’s economy.
- Hiring local employees is encouraged.
- The company must have 2 Shareholder & 2 Directors. Two of the company directors must be Malaysia permanent residents.
- There should be 2 – 50 shareholders in your Sdn Bhd Company.
There are many Advantages of a Sdn Bhd Company. First, it is one of the only types of business a foreigner can start.
- The owner has limited liability
The shareholders are responsible only for their contribution of investment. The owner is not responsible for the debts of the company unless you have given a personal guarantee. So, the owners’ personal assets are safe. Most Malaysians and foreigners alike find the Sdn Bhd a favorable business entity. It provides more depth to your business & also helps secure your personal finances.
- Separate entity
The company acts on behalf of its self. It is a separate legal entity. The company can acquire assets, buy property, enter contracts & even go to courts. In a partnership or sole proprietorship, the company ceases to exist when with the owner’s demise. But in a Sdn Bhd companies continue to exist even after owner’s death or retirement. So, the company can make long-term plans.
As it is a separate entity, you can sell or transfer shares to anyone. This can be a family member or an outsider who is willing to pay a high price. Shares can be fully or partially sold.
- Lower Company Tax Rates
Sdn Bhd Companies are separate from their owners. And the corporate tax rates are lower than personal tax rates. Currently, company tax for companies with share capital less than 2.5 Million or less is 17%. As at 2019 the Government imposed Standard Corporate Tax Rate of 24%. The company pays taxes according to the profits earned.
- Multiple Tax Incentives
As a SME owner, you are entitled to many tax incentives.
- Capital allowance for ICT Equipment & software
- Industry 4.0
- Hiring the Disabled
- Ability to earn more capital as required
Businesses need investment from time to time. Luckily for Snd Bhd Companies, this is not an issue. The company can issue bonds or share certificates to raise money. It is easy to obtain loans from financial institutions. Banks often tend to view Private limited companies as less risky than other types of business entities. Also, the interest rates for bank loans for Sdn Bhds are lower than any other type of entity.
- Sdn Bhd Companies can maintain a positive reputation
Sdn Bhd companies have to report financials methodically. Therefore, there is transparency amongst the company and shareholders. Chances of fraud happening are less. For this reason, Sdn Bdh companies make a positive impact on their customers. Moreover, the financial reports are made public. Whereas a sole proprietorship or partnership, company does not follow strict reporting. Thus, there is more trust in Sdn Bhd Companies.
Owners of the company can decide the venue to set up the business. They can choose an office space to suit their budget. By doing this they can cut down on traveling expenses and rent.
- The owners decide on the distribution of revenue
The owners decide how the revenue should be distributed. They can choose how much of the revenue be re-invested back into the business. They also can decide on the employees, salaries, dividends, or bonuses. The owners can decide how much of the company’s revenue should go to charity or entertainment. The advantage here is that these amounts payable are decided by how much revenue the company receives. Whereas in a sole proprietorship or partnership company, these expenses are considered as personal expenses.
Having discussed the advantages, there is bound to be a few disadvantages as well.
Disadvantages of Sdn Bhd Company:
- The company’s financials are made public
- Appointing a company secretary to attend to statutory submission & returns
- & to prepare minutes for shareholder and board meetings is necessary
- The company must carry out yearly audits on their financials
- The start-up cost for a Sdn Bhd is higher than of a sole proprietorship company
Considering all the facts, we can clearly conclude that the advantages out-weigh the disadvantages in a Sdn Bhd Company. We can easily say that for a new business the Sdn Bhd or Private Limited Company is the way to go. A business, when registered as a Private Limited Company in Malaysia, will bear the suffix “Sdn Bhd” at the end of the company name.
I hope you have been able to grasp the concept of opening a Sdn Bhd Company in Malaysia. If you have more questions that are yet unanswered, you may contact S & F Consulting on the numbers provided.
The team at S & F consulting is experienced and qualified in all matters relating to business. Your business matter to us as much as it does to you.